Weekly Forex & Interest Rate Outlook

Transcription

1 Westpac Forex & Interest Rate Outlook 8 July 01 Weekly Forex & Interest Rate Outlook Chart 1 NZD/USD breaking down to mid-0.70 s NZD/USD breaking down to mid-0.70 s USD expect a break below 85 towards next 0.7 USD Actual Forecast Current 1 1wk change 1wk 1-mth NZD/USD NZD/AUD NZD/JPY NZD/EUR NZD/GBP yr swap Chart NZ NZ economic momentum has peaked Index % 0 Nov-09 May-10 Nov-10 May-11 NZ data pulse, 8wk rolling ave. (lhs) NZD/USD, 8wk % change (rhs) -15 Nov-11 May-1 Nov-1 May-1 Chart Speculators are are now now slightly short NZD 0.95 NZD NZ$bn extreme positioning signals reversal in NZD/USD NZD/USD (lhs) CME futures position (rhs) Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-1 Jul yr swap NZD/USD Outlook: Lower this week NZD/USD has been stuck in a range for two weeks but a break to the downside looms. Strong US payrolls data supports a September QE tapering start and that should weigh on NZD/USD for the next few months. A break below 85 points towards by September. Economic momentum has continues to slip, albeit from heady heights (Chart ), while speculators have flipped from an extremely long-nzd state in early May to a slightly short-nzd state now. There s scope for these players to increase their short positions further (Chart ). The main item to watch in NZ this week will be NZIER business confidence. In US it will be Bernanke s speech.. Event Risk This Week This week s NZ calendar warms up but remains devoid of major market-movers. On Tuesday there s NZIER business confidence, electronic spending and QV house prices. On Thursday there s PMI and food prices. Offshore NZGB holdings are on Friday. US events worth watching are the FOMC minutes for the June meeting and Fed chairman Bernanke s speech, both on Wednesday. 1 Current rates as at 10am today. From Friday NY close. Ratings explanation: denote neutral, up and down. Imre Speizer, Senior Market Strategist, NZ, , imre_speizer@westpac.co.nz 1

2 Westpac Forex & Interest Rate Outlook NZ Crosses Chart 4 NZD/AUD NZD/AUD uptrend uptrend intact intact AUD above 00 this week 0.8 Chart 5 NZD/JPY heading towards 80 NZD/JPY heading towards AUD bullish for the near term at least Chart 6 NZD/EUR NZD/EUR consolidation consolidation continues continues Chart 7 NZD/GBP NZD/GBP consolidation consolidation continues continues NZD/AUD: The uptrend since March remains intact. We target above 00 this week, weaker Australian employment one possible catalyst. We expect to see the cross above 00 by year-end given the RBNZ will start hiking next year whereas the RBA will still be easing. The data calendar is quiet early in the week. Mon has Jun ANZ Job Ads, not a market mover. On Tue we see Jun NAB business confidence then on Wed Jul Westpac-MI consumer sentiment. The key data release is Jun labour force on Thu, with risks for a higher unemployment rate. NZD/JPY: June s bounce should extend to 80.0 at least. Japan s economy has improved slightly, causing investment outside Japan which hurts the yen. Data is pretty light this week with bank lending and the eco watchers Monday, money supply Tuesday, CGPI on Wednesday and final IP Friday. Much more important will be the two day BoJ meeting (Thu) which is an interim assessment meeting ie a quarterly update. Wires have been suggesting the BoJ will not make any policy moves next week although given the raised assessment in eight of nine regions announced last week, an upgrade to the outlook is possible. We agree. The BoJ has close to zero capacity to increase monetary policy stimulus here.- NZD/EUR: We expect the ranging consolidation between and to continue this week. There is a risk breaks, most likely because the ECB has recently signalled its expect to ease further. As far as Eurozone events to watch go, we will get plenty of commentary on the latest sovereign concerns from the Eurogroup meeting of finance ministers on Mon. Eurozone data releases include May German IP (Mon) then French and Italian IP (Wed). NZD/GBP: Last week s consolidation between and may give way to a rally to New Governor Carney has made his mark with the forthcoming interest rate outlook which should reflect easy policy for time. As far as UK events to watch go, UK May IP is on Tuesday

3 Westpac Forex & Interest Rate Outlook NZ Interest Rates Chart 8 NZ yr swap uptrend intact NZ yr swap uptrend intact % % heading for.50% Jun-1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1 Jun-1 Chart 9 5yr swap 5yr uptrend swap uptrend intact intact % % Nov-08 Nov-09 Nov-10 Nov-11 Nov-1 Nov Review: The NZ swap market initially consolidated last week but was jolted higher by a strong US payrolls report. The yr swap yield rose from.17% to.5% while 10yr swap yield rose from.89% and 4.17%. OIS pricing (the best market predictor of the OCR) continued to imply the first 5bp hike will be in March 014. Our economists continue to forecast the first hike of 5bp to be in Mar-014 with building and housing activity eventually forcing the RBNZ s hand. At the June MPS, the RBNZ kept its forecast it would raise the OCR from around Sep-014 (Chart 10), but steepened the expected tightening path. Swap Yield Outlook: Higher this week The uptrend in NZ yields remains intact, higher US rates the main story in town. The next target for NZ yr swaps is.50%, while the 5yr should head towards 4.5%. A major correction is likely over the next few weeks, though, because the uptrends are looking technically stretched. The yr could revisit.0% while 5yr could revisit.80%. An additional medium term factor arguing for higher NZ yields, via pressure on the RBNZ to hike, is the lower NZD/ USD exchange rate which represents an easing in financial conditions. Chart 10 Market Market expectations expectations above above RBNZ s RBNZ s near near term term % % RBNZ's projection as at 1-Jun-1 Swap market current Westpac Economics forecast RBNZ projection in Mar-1 Westpac expects first hike in March 014 Source: RBNZ, Bloomberg, Westpac (90-day bank bill interest rates).0.0 Jul-1 Jul-14 Jul-15 Jul-16 Jul-17 Jul

4 Westpac Forex & Interest Rate Outlook Key Data and Events Last Market Westpac median forecast Risk/Comment Mon 8 Aus Jun ANZ job ads -.4% Ongoing weakness in ads has seen the annual rate fall to -0%yr. Eur Jul Sentix investor confidence ECB easing bias positive; Greek bailout, Portuguese politics negative Ger May industrial production 1.8% 0.5% 0.5% Factory PMI sub 50; three monthly gains Feb-Apr unsustainable. May exports 1.7% 0.1% 0.5% If IP is down, exports are unlikely to rise further. US May consumer credit $bn Student and auto loans the main drivers in 01 and so far this year. Can May building permits 10.5% Up 4 months running already this year, latest rise led by multiples. Q BoC senior loan officer survey 5.8 Credit availability relatively easy though not as loose as in 011. Q business outlook survey 4 Future sales index. Tue 9 NZ Q NZIER business opinion Likely to be strong, but will overstate Q GDP as it excludes agriculture. Jun electronic card transactions 0.6% 0.7% Fuel prices sharply higher in June; steady growth expected elsewhere. Aus Jun NAB business conditions 4 June: conditions index +pts to 4; confidence steady 1. Both below avg. Chn Jun consumer prices %yr.1%.5% Swings in food, steady core, shelter plateauing. Jun producer prices %yr.9%.6% Base effects becoming flattering. UK Jun BRC sales %yr 1.8% Same store sales. May bounced after freezing Mar-Apr weather. Jun house prices net balance 5% 8% RICS surveyors series. May industrial production 0.1% 0.% 0.4% 50+ PMI readings imply rising output outside oil/utility volatility May trade balance bn Exports down 1.4% and imports down.8% saw Apr deficit narrow. US Jun NFIB small business optimism ISM surveys of big business pretty soft in June. Can Jun housing starts 1.8% 5.1% Permits upswing flowing through to starts. Wed 10 Aus Jul Westpac MI Consumer Sentiment 10. Financial volatility, job insecurity and politics may influence July read. Chn Jun trade balance USDbn Small improvements in both X and M, seasonality does the rest. Jun foreign reserves USDbn Tentative date. SAFE regs. and Bank activities implies little gain over Q1. Jun new loans RMBbn Tentative date. First fortnight saw decent flows, irrespective of SHIBOR. Jun M money supply %yr 15.8% 15.% Tentative date. Capital inflows not what they were early in the year. Jun total credit RMBbn Tentative date. Most interest in FX loans, bill financing and trusts. US May wholesale inventories 0.% 0.% 0.1% Inventories expanded in Jan but kept tight since then. Jun FOMC minutes A range of views re tapering likely to be expressed. Fed Chairman Bernanke Speaking in Boston on policy-making history Thu 11 NZ Jun food price index 0.% 1.4% Seasonal jump in produce prices; annual inflation still near zero. Jun manufacturing PM 59. The nine-year high in May will be a challenge to match. Aus Jun employment, chg 1.1k flat -15k Leading indicators pointing to a near term soft patch. Jun unemployment rate 5.5% 5.6% 5.6% The die is being cast for the unemployment rate to rise through 6%. Jul Westpac MI unemploy expectations 6.% Have risen almost 10% since Jan, households see a soft labour market. Jul inflation expectations %yr.1% Median inflation expectations remain well anchored. US Jun import prices 0.6% 0.0% 0.% Oil prices a little higher on avge than in May. Initial jobless claims w/e Jul 6 4k 5k 40k Claims downtrend may have slowed or stalled. Jun federal budget $bn 40.0 Impact of fiscal compromise/sequester to show up here. Can May new house prices 0.% Running around % yr annual pace since 010. Fri 1 NZ Jun REINZ house sales 5.% No release date but usually available by the 1th. Low interest rates... Jun REINZ house price index %yr 8.7%...and insufficient supply continue to drive prices higher. Aus May housing finance 0.8%.%.0% Uneven recovery. May rate cut boost more likely to show in Jun-Jul. Eur May industrial production 0.4% 0.% 0.5% Factory PMI sub 50; German IP data 8/7 will give an early clue. US Jun PPI 0.5% 0.5% 0.% Energy prices rising further. Jun PPI core 0.1% 0.1% 0.% Core trend now sub 0.%, some upside risk from vehicle prices. Jul UoM consumer sentiment prelim responses in prelim; IBD-TIPP weaker in Jul with 900 replies. Fedspeak Plosser, Bullard and Williams Can Jun house prices %yr.0% Teranet/National Bank index. Global Central Bank Monitor Latest Move Current Next Comments RBNZ 50bp cut 10//11.50% 5 Jul Uncomfortably on hold: faster growth and hot housing but low inflation. RBA 5bps cut 4/1/1.75% 6 Aug Expect another cut in August, on the way to a % low, as mining investment slows. Fed 75bps cut 16/1/08 0.5% 6 Aug Last meeting surprised with tapering signal but data needs to evolve before action ECB 5bps cut 5/7/1 0.75% 1 Aug Provided forward guidance for the first time, reflecting an easing bias BoE 50bps cut 5// % 8 Aug Announced it will provide forward guidance for the first time BoC 5bps hike 0/7/ % 18 Jul Retained mild tightening bias. 4

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